-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W0rL4mgRU+X6lHls2n+cHUY7ww4o+sq5r6rqrYf43oiP4G0GyoClEUjtdY4rwzoL ugAbR35wLlwFfcvMpGrisQ== 0000950116-99-001572.txt : 19990817 0000950116-99-001572.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950116-99-001572 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990702 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARAMARK CORP CENTRAL INDEX KEY: 0000757523 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 232319139 STATE OF INCORPORATION: DE FISCAL YEAR END: 0927 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08827 FILM NUMBER: 99690996 BUSINESS ADDRESS: STREET 1: THE ARA TOWER STREET 2: 1101 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19107 BUSINESS PHONE: 2152383000 MAIL ADDRESS: STREET 1: ARA GROUP INC STREET 2: 1101 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19107 FORMER COMPANY: FORMER CONFORMED NAME: ARA GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ARA HOLDING CO DATE OF NAME CHANGE: 19880515 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended July 2, 1999 Commission file number 1-8827 ------------ ------ ARAMARK CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 23-2319139 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ARAMARK TOWER 1101 Market Street Philadelphia, Pennsylvania 19107 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (215) 238-3000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class A common stock outstanding at July 30, 1999 2,731,361 Class B common stock outstanding at July 30, 1999 66,008,502 - ------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands)
ASSETS July 2, October 2, 1999 1998 ----------- ----------- Current Assets: Cash and cash equivalents $ 26,634 $ 20,614 Receivables 510,416 526,506 Inventories, at lower of cost or market 359,904 361,451 Prepayments and other current assets 80,785 60,734 ----------- ----------- Total current assets 977,739 969,305 ----------- ----------- Property and Equipment, net 897,168 874,393 Goodwill 604,872 603,937 Other Assets 298,972 293,664 ----------- ----------- $ 2,778,751 $ 2,741,299 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term borrowings $ 25,075 $ 24,560 Accounts payable 324,164 373,696 Accrued expenses and other liabilities 553,092 502,482 ----------- ----------- Total current liabilities 902,331 900,738 ----------- ----------- Long-Term Borrowings 1,597,677 1,705,049 Deferred Income Taxes and Other Noncurrent Liabilities 182,652 194,388 Common Stock Subject to Potential Repurchase Under Provisions of Shareholders' Agreement 20,000 20,000 Shareholders' Equity/(Deficit) Excluding Common Stock Subject to Repurchase: Class A common stock, par value $.01 27 25 Class B common stock, par value $.01 662 629 Capital Surplus 64,955 -- Earnings retained for use in the business 34,553 (56,815) Cumulative translation adjustment (4,106) (2,715) Impact of potential repurchase feature of common stock (20,000) (20,000) ----------- ----------- Total 76,091 (78,876) ----------- ----------- $ 2,778,751 $ 2,741,299 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In Thousands, Except Per Share Amounts)
For the Three Months Ended For the Nine Months Ended -------------------------- ------------------------- July 2, July 3, July 2, July 3, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenues $1,650,438 $1,634,325 $4,836,358 $4,817,200 ---------- ---------- ---------- ---------- Costs and Expenses: Cost of services provided 1,482,561 1,478,760 4,380,620 4,381,802 Depreciation and amortization 48,966 49,730 143,496 146,732 Selling and general corporate expenses 20,352 19,710 62,683 63,286 ---------- ---------- ---------- ---------- 1,551,879 1,548,200 4,586,799 4,591,820 ---------- ---------- ---------- ---------- Operating income 98,559 86,125 249,559 225,380 Interest Expense, net 33,295 28,534 102,760 82,380 ---------- ---------- ---------- ---------- Income before income taxes 65,264 57,591 146,799 143,000 Provision for Income Taxes 23,405 20,422 55,430 57,096 ---------- ---------- ---------- ---------- Income before extraordinary item 41,859 37,169 91,369 85,904 Extraordinary Item due to Early Extinguishment of Debt (net of income taxes) -- 2,915 -- 4,474 ---------- ---------- ---------- ---------- Net income $ 41,859 $ 34,254 $ 91,369 $ 81,430 ========== ========== ========== ========== Earnings Per Share: Income before extraordinary item Basic $ .44 $ .32 $ .97 $ .71 Diluted $ .41 $ .30 $ .90 $ .66 Net income Basic $ .44 $ .29 $ .97 $ .67 Diluted $ .41 $ .27 $ .90 $ .63
The accompanying notes are an integral part of these condensed consolidated financial statements. ARAMARK CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
For the Nine Months Ended ------------------------------- July 2, July 3, 1999 1998 --------- --------- Cash flows from operating activities: Net income $ 91,369 $ 81,430 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 143,496 146,732 Income taxes deferred 5,611 9,846 Extraordinary item -- 4,474 Changes in noncash working capital (10,200) (54,902) Other operating activities (11,854) (12,280) --------- --------- Net cash provided by operating activities 218,422 175,300 --------- --------- Cash flows from investing activities: Purchases of property and equipment (126,147) (107,510) Disposals of property and equipment 10,401 16,260 Sale of Investments 40,722 5,779 Divestiture of certain businesses 8,380 31,116 Acquisition of certain businesses (60,614) (19,769) Other investing activities (14,425) (30,499) --------- --------- Net cash used in investing activities (141,683) (104,623) --------- --------- Cash flows from financing activities: Proceeds from additional long-term borrowings 4,323 675,065 Payment of long-term borrowings including premiums (117,880) (172,440) Proceeds from issuance of common stock 59,336 22,330 Repurchase of stock (16,313) (584,959) Other financing activities (185) (7,851) --------- --------- Net cash used in financing activities (70,719) (67,855) --------- --------- Increase in cash and cash equivalents 6,020 2,822 Cash and cash equivalents, beginning of period 20,614 27,352 --------- --------- Cash and cash equivalents, end of period $ 26,634 $ 30,174 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. ARAMARK CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the statements include all adjustments (which include only normal recurring adjustments) required for a fair statement of financial position, results of operations and cash flows for such periods. The results of operations for the interim periods are not necessarily indicative of the results for a full year. (2) LONG TERM BORROWINGS: In the third quarter of fiscal 1998, the Company exercised its option to redeem its $100 million 8-1/2% subordinated notes at a price of 104.25% of the principal amount, resulting in an extraordinary item for debt extinguishment of $2.9 million (net of tax benefit of $1.9 million). In the second quarter of fiscal 1998, the Company redeemed a $50 million 8% note due April 2002 for a premium resulting in an extraordinary item for debt extinguishment of $1.6 million (net of tax benefit of $1.0 million). (3) CAPITAL STOCK: During the first nine months of fiscal 1999, pursuant to the ARAMARK Ownership Program, employees purchased 5,920,406 shares or $29.9 million of Class B Common Stock for $15.1 million cash plus $14.8 million of deferred payment obligations. At the end of the third quarter, the Company sold for cash, without recourse, approximately $44 million of notes receivable (deferred payment obligations) which resulted from sales of stock pursuant to the Company's stock option program. The sales price approximated book value and the proceeds were used to repay borrowings under the credit facility. Shareholders' Equity increased by $44 million as the notes were previously reflected as a reduction of Shareholders' Equity. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (4) SUPPLEMENTAL CASH FLOW INFORMATION: The Company made interest payments of $88.4 million and $83.0 million and income tax payments of $53.1 million and $32.6 million during the first nine months of fiscal 1999 and 1998, respectively. During the first nine months of fiscal 1999, the Company purchased $8.3 million of its Class A Common Stock and $14.7 million of its Class B Common Stock, issuing $6.7 million in subordinated installment notes as partial consideration. (5) COMPREHENSIVE INCOME: In the first quarter of fiscal 1999, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". Comprehensive income includes all changes in Shareholders' Equity during a period, except those resulting from investment by and distributions to shareholders. Components of comprehensive income include net income, changes in foreign currency translation adjustments and unrealized holding gains/losses in marketable equity securities. Total comprehensive income was $42.0 million and $90.0 million for the three and nine months ended July 2, 1999, respectively; and $32.7 million and $75.9 million for the three and nine months ended July 3, 1998. (6) ACQUISITIONS: During the second quarter of fiscal 1999, the Company acquired Restaura, Inc. a provider of food and support services, and Dyna Corporation, a leading distributor of emergency medical supplies for approximately $46 million and $13 million in cash, respectively. (7) ARAMARK SERVICES, INC. AND SUBSIDIARIES: The following financial information has been summarized from the separate consolidated financial statements of ARAMARK Services, Inc. (a wholly owned subsidiary of ARAMARK Corporation) and the subsidiaries which it currently owns. ARAMARK Services, Inc. is the borrower under the revolving credit facility and certain other senior debt agreements and incurs the interest expense thereunder. This interest expense is only partially allocated to all of the other subsidiaries of ARAMARK Corporation.
For the Three Months Ended For the Nine Months Ended ------------------------------- -------------------------------- July 2, July 3, July 2, July 3, 1999 1998 1999 1998 ----------- ---------- -------------- ------------- (in millions) Revenues $1,002.3 $896.4 $ 3,072.6 $2,777.7 Cost of services provided 944.3 846.6 2,878.8 2,609.6 Net income 8.4 4.7 32.2 26.2 July 2, October 2, 1999 1998 --------- ---------- (in millions) Current assets $ 459.8 $ 451.1 Noncurrent assets 1,999.7 2,079.8 Current liabilities 542.0 545.4 Noncurrent liabilities 1,725.3 1,823.9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (8) EARNINGS PER SHARE: The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Earnings per share is reported on a Common Stock, Class B equivalent basis (which reflects Common Stock, Class A shares converted to a Class B basis, ten for one). Share and per share amounts have been restated to reflect the three-for-one stock split in September 1998. Earnings applicable to common stock and common shares utilized in the calculation of basic and diluted earnings per share are as follows;
Three Months Ended Nine Months Ended ---------------------------- ---------------------------- July 2, July 3, July 2, July 3, 1999 1998 1999 1998 -------- -------- -------- --------- (in thousands, except per share data) Earnings: Income before extraordinary item $ 41,859 $ 37,169 $ 91,369 $ 85,904 ======== ======== ======== ======== Shares: Weighted average number of common shares outstanding used in basic earnings per share calculation 95,707 117,432 93,812 121,762 Impact of potential exercise opportunities under the ARAMARK Ownership Plan 6,639 8,097 7,407 7,927 -------- -------- -------- -------- Total common shares used in diluted earnings per share calculation 102,346 125,529 101,219 129,689 ======== ======== ======== ======== Basic earnings per common share $ .44 $ .32 $ .97 $ .71 ======== ======== ======== ======== Diluted earnings per common share $ .41 $ .30 $ .90 $ .66 ======== ======== ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Overview Revenues of $1.7 billion for the third quarter increased 1% and revenues of $4.8 billion for the nine month period were equal compared to the prior year periods. Operating income of $98.6 million for the third quarter and $249.6 million for the nine month period increased 14% and 11%, respectively, over the prior year periods. Excluding the operating results of the Distributive segment, which was contributed to a joint venture in exchange for a minority interest in the venture in the fourth quarter of fiscal 1998, revenues for the three and nine month periods increased 9% and 8%, respectively, over the prior year due to increases in all three of the Company's segments. Operating income, excluding the Distributive segment, for the three months increased 8% over the prior year period, with earnings increasing in all segments. Operating income, excluding the Distributive segment, for the nine month period increased 5%, due to increased earnings in the Food and Support Services and Educational Resources segments, partially offset by lower earnings in the Uniform and Career Apparel segment. Results for the nine month period were also adversely impacted by the National Basketball Association (NBA) labor dispute, which was settled in January 1999. Had the labor dispute not occurred, it is estimated that fiscal 1999 operating income and net income for the nine months would have been approximately 1% and 2% higher, respectively. The Company's operating margin for the nine month period increased to 5.2% from 4.7%, primarily as a result of the previously described Distributive segment transaction. Interest expense, net increased 17% and 25% for the three and nine month periods, respectively, due primarily to increased debt levels resulting from the tender offer transaction in June 1998. Segment Results Revenues - Food and Support Services segment revenues for the three and nine month periods increased 10% and 9%, respectively, over the prior year due to new accounts (approximately 1% and 2%, respectively), acquisitions (approximately 4% and 3%, respectively) and increased volume (approximately 5% and 4%, respectively). Uniform and Career Apparel segment revenues for the three and nine month periods increased 4% over the prior year due primarily to increased volume in the Uniform rental business. Educational Resources segment revenues for the three and nine month periods increased 10% and 11%, respectively, over the prior year periods due to pricing and new locations. Operating Income - Food and Support Services segment operating income increased 12% and 11% for the three and nine month periods, respectively, versus the prior year periods due to the increased revenues noted above and effective cost controls, partially offset in the nine month period by the impact of the NBA labor situation. Had the labor dispute not occurred, it is estimated that Food and Support Services segment operating income for the nine month period would have been 2% higher. Uniform and Career Apparel segment operating income for the three and nine month periods increased 1% and decreased 12%, respectively, versus the prior year periods. Excluding the impact of gains on the sale of assets and the impact of provisions to write-down certain inventory to net realizable value from both the current year and prior year results, Uniform and Career Apparel segment operating income for the three and nine month periods decreased 5% and 9%, respectively, from the prior year periods. The decreases are due to costs incurred in connection with the implementation of a new marketing initiative and increased costs in the direct marketing businesses. Educational Resources segment operating income for the three and nine month periods increased 6% and 9%, respectively, due to the revenue increases noted above. FINANCIAL CONDITION The Company's indebtedness decreased $107 million in the first nine months of fiscal 1999. The Company currently has approximately $675 million of unused committed credit availability under its credit facilities, which management believes, along with cash flows from operations, is sufficient to fund operating requirements. At the end of the third quarter, the Company sold for cash, without recourse, approximately $44 million of notes receivable which resulted from sales of stock pursuant to the Company's stock option program. The sales price approximated book value and the proceeds were used to repay borrowings under the credit facility. Shareholders' Equity increased by $44 million as the notes were previously reflected as a reduction of Shareholders' Equity. YEAR 2000 READINESS DISCLOSURE The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As a result, on or near the change of the century, date-sensitive systems may recognize the Year 2000 as 1900, or not at all, which may cause systems to fail or process financial and operational information incorrectly. The Company has developed plans to address its Year 2000 issues. The plans address three broad areas: (1) internal information technology systems - including financial and operational application systems, computer hardware and systems software; (2) non-information technology systems - such as communication systems, building systems and devices with embedded computer chips; and (3) third party compliance - which addresses Year 2000 compliance efforts of key vendors and suppliers. The project plans consist of the following phases: 1) Organizational awareness - general awareness of the Year 2000 issues, which has been completed, and ongoing communication of Year 2000 project status. 2) Inventory of current applications, which has been completed. 3) Risk assessment of inventoried systems, with identification of mission-critical systems, which has been completed. 4) Replacement/remediation of systems. 5) Year 2000 testing and conversion of systems, including rollout of compliant hardware/software to front line locations. 6) Contingency planning. Program management offices, staffed with a combination of business unit personnel and external consultants, have been established to address Year 2000 issues. Additionally, a Corporate Compliance Task Force consisting of internal audit, information technology, legal and risk management personnel, with assistance from external consultants, was formed in 1997 to review and monitor the Year 2000 compliance programs. The Task Force meets regularly to review corporate-wide Year 2000 issues and progress. The Company's Year 2000 compliance effort is monitored by senior management on a regular basis and the Audit Committee of the Board of Directors receives progress reports at least quarterly. Internal information technology systems - As of July 30, 1999, the inventory and risk assessment phases for all mission-critical systems have been completed. For most systems, replacement/remediation and the related testing have also been completed. For a few systems, replacement/remediation or testing activities are still underway. The Company expects that its mission-critical internal systems will be Year 2000 compliant by October 1999. Based on the current status of project plans, the Company believes that Year 2000 events caused by the Company's internal financial and operational systems would not have a material adverse impact on the Company's operations or financial condition. Non-information technology systems - The inventory and risk assessment phases are essentially completed. Based on the results of these phases, the Company has determined that there are few mission-critical systems with non-compliant date logic. These systems are expected to be replaced by September 1999. Given the nature and geographic dispersion of the Company's business units, the Company believes that any events caused by Year 2000 failures of non-information technology systems would be short-term in nature and would not have a material adverse impact on the Company's operations or financial condition. Third party compliance - The Company has identified, and initiated communications with, key third party suppliers and customers to determine potential exposure to these third parties' failure to remediate their own Year 2000 issues. The Company has conducted on site reviews of key suppliers' project status and issues. The Company continues to monitor suppliers' Year 2000 status and is developing contingency plans to address potential third party Year 2000 failures. The basic materials required to operate the Company's businesses are generally available from a number of suppliers, and in the event of an inability of a key supplier to deliver product, the Company believes alternative sources will be available. However, an extended outage by utilities (electric, water, telephone, etc.), key third-party suppliers or financial institutions, while somewhat mitigated by the geographic dispersion of the Company's businesses, could have material adverse impacts on the Company's operations and financial condition. Contingency Plans The Company has contingency plans for computer failures, power outages, natural disasters, etc. Year 2000 contingency plans for mission-critical systems, in the areas discussed above, are being developed and will be integrated with the existing contingency plans where appropriate by December 1999. Costs The Company currently estimates spending approximately $15 to $20 million, excluding internal costs, to complete its Year 2000 compliance program, including approximately $12 million that has been expended through the third quarter of fiscal 1999. Year 2000 costs related to systems or equipment replacement are capitalized in accordance with the Company's accounting policies. Year 2000 remediation costs are expensed as incurred. The Company's ability to achieve Year 2000 compliance, the level of costs associated therewith and the resultant impact on operations and financial condition could be adversely impacted by, among other things, the availability and cost of applicable resources, vendors' ability to modify proprietary software, and unanticipated problems identified in the ongoing compliance program. PART II - OTHER INFORMATION Item 1 through 5 are not applicable. Item 6: Exhibits. (a) Exhibit 27 - Financial Data Schedule (b) Not Applicable. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARAMARK CORPORATION s/ Alan J. Griffith ----------------------------- Alan J. Griffith August 16, 1999 Vice President, Controller and Chief Accounting Officer EX-27 2
5 This schedule contains summary financial information from the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Income filed as part of Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 1,000 9-MOS OCT-01-1999 OCT-03-1998 JUL-02-1999 26,634 0 510,416 23,001 359,904 977,739 1,833,061 935,893 2,778,751 902,331 1,597,677 0 0 689 75,402 2,778,751 0 4,836,358 0 4,371,523 143,496 10,101 102,760 146,799 55,430 91,369 0 0 0 91,369 .97 .90
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